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How Does AngelList Make Money? The AngelList Business Model In A Nutshell

AngelList is an American platform for angel investors, start-ups, and those looking to be employed in start-ups, launched in 2010 by Naval Ravikant and Babak Nivi with a mission to democratize the investment process. AngelList makes money via Syndicates, a “pop-up” venture capital fund. Also, for fund or syndicate managers, AngelList Venture is a one-stop solution for legal, regulatory, and back-office services. Lastly, AngelList Recruit is a recruitment platform for start-ups of all sizes to fill vacant positions.

History of AngelList

AngelList is an American platform for angel investors, start-ups, and those looking to be employed in start-ups.

The platform was launched in 2010 by Naval Ravikant and Babak Nivi with a mission to democratize the investment process.

The pair were already running a successful blog on entrepreneur financing and would periodically receive requests from entrepreneurs who wanted to connect with investors, and vice versa.

Realizing the lack of connection between entrepreneurs and investors, the co-founders listed 50 angel investors online who were willing to invest in start-ups that required funding.

Three years later, AngelList Syndicates was launched. Syndicates are single-deal start-up investment funds that allowing multiple investors to pool their capital.

Each syndicate is led by an experienced angel investor who vets each investment and demonstrates confidence to others in the pool.

AngelList is sometimes called LinkedIn for start-ups because angel investors and venture capital firms use the platform to find or research high potential start-ups.

However, it’s also a crowdfunding service allowing entrepreneurs to fund world-changing ideas.

The company has more than $3 billion in assets under management and has funded 77 unicorns to date. 

AngelList revenue generation

AngelList Syndicates

AngelList Syndicates are essentially a “pop-up” venture capital fund.

Here is how this fundamental process works and how the company makes money from it.

  1. The syndicate creator or lead invites others to pool their capital in a start-up.
  2. AngelList manages the above process and charges a 5% “carry” fee for doing so.
  3. The syndicate lead then pockets 15%.

Note that a carry fee is simply a percentage of the upside of an investment. If an angel investor receives a return of $200,000 on a $50,000 investment, the gain would be $150,000.

Of that amount, 5% ($7,500) would go to the company and 15% to the syndicate lead.

AngelList Venture

For fund or syndicate managers, AngelList Venture is a one-stop solution for legal, regulatory, and back-office services.

Here, there are three options:

  1. Traditional Funds – a 1% admin fee is charged on funds capped at $25,000 per year. This option is suitable for three or more deals per year.
  2. Rolling Funds – the admin fee here is 0.15% of the total annual contributed capital. This option is best suited to three or more options per quarter.
  3. Syndicates – with a flat, one-time setup fee of $8,000. This option allows fund managers to create a new Special Purpose Vehicle (SPV) business entity for each investment. The setup fee is reduced to $4,000 for follow-on investments.

AngelList also charges a 5% carry fee for each syndicate member in all three scenarios.

AngelList Recruit

AngelList Recruit is a recruitment platform for start-ups of all sizes to fill vacant positions.

The free Starter plan gives businesses limited access to 2.3 million candidates. It also gives them the ability to post unlimited job listings and process inbound applicants.

For those desiring more functionality, there are a couple of paid options:

  1. Pro ($250/month) – offering unlimited access to candidates, candidate profiles, advanced search filters, and workflow tools. The AngelList Curated feature is also available, giving hiring managers access to interview-ready candidates and dedicated technical sourcing. Curated hires attract a further 20% fee based on the salary of the position being filled.
  2. Team – for those who need to hire quickly and spend limited time on sourcing with a dedicated account manager. Custom prices are available on request.

Key takeaways:

  • AngelList is an American platform connecting entrepreneurs and investors. It was founded by Naval Ravikant and Babak Nivi in 2010 to democratize the investment process.
  • AngelList charges a 5% carry fee for any return a syndicate member makes on an investment. It also charges administration fees in exchange for providing legal, regulatory, and back-office fund management services.
  • AngelList offers two paid options for businesses that need to recruit staff. Additional fees are applicable if managers desire a list of interview-ready candidates and dedicated technical sourcing.

Read Also: How Does Product Hunt Make Money, LinkedIn Multi-Sided Platform Business Model, How Does Glassdoor Make Money, How Does Indeed Make Money, How Does Upwork Make Money, How Does Fiverr Work And Make Money.

Connected Business Frameworks

Balance Sheet

balance-sheet
The purpose of the balance sheet is to report how the resources to run the operations of the business were acquired. The Balance Sheet helps to assess the financial risk of a business and the simplest way to describe it is given by the accounting equation (assets = liability + equity).

Income Statement

income-statement
The income statement, together with the balance sheet and the cash flow statement is among the key financial statements to understand how companies perform at a fundamental level. The income statement shows the revenues and costs for a period and whether the company runs at profit or loss (also called P&L statement).

Cash Flows

cash-flow-statement
The cash flow statement is the third main financial statement, together with an income statement and the balance sheet. It helps to assess the liquidity of an organization by showing the cash balances coming from operations, investing and financing. The cash flow statement can be prepared with two separate methods: direct or indirect.

Financial Structure Modeling

financial-structure
In corporate finance, the financial structure is how corporations finance their assets (usually either through debt or equity). For the sake of reverse engineering businesses, we want to look at three critical elements to determine the model used to sustain its assets: cost structure, profitability, and cash flow generation.

Tech Modeling

business-model-template
A tech business model is made of four main components: value model (value propositions, missionvision), technological model (R&D management), distribution model (sales and marketing organizational structure), and financial model (revenue modeling, cost structure, profitability and cash generation/management). Those elements coming together can serve as the basis to build a solid tech business model.

Revenue Modeling

revenue-model-patterns
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.

Pricing Strategies

pricing-strategies
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.

Dynamic Pricing

static-vs-dynamic-pricing

Price Sensitivity

price-sensitivity
Price sensitivity can be explained using the price elasticity of demand, a concept in economics that measures the variation in product demand as the price of the product itself varies. In consumer behavior, price sensitivity describes and measures fluctuations in product demand as the price of that product changes.

Price Ceiling

price-ceiling
A price ceiling is a price control or limit on how high a price can be charged for a product, service, or commodity. Price ceilings are limits imposed on the price of a product, service, or commodity to protect consumers from prohibitively expensive items. These limits are usually imposed by the government but can also be set in the resale price maintenance (RPM) agreement between a product manufacturer and its distributors. 

Price Elasticity

price-elasticity
Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It can be described as elastic, where consumers are responsive to price changes, or inelastic, where consumers are less responsive to price changes. Price elasticity, therefore, is a measure of how consumers react to the price of products and services.

Economies of Scale

economies-of-scale
In Economics, Economies of Scale is a theory for which, as companies grow, they gain cost advantages. More precisely, companies manage to benefit from these cost advantages as they grow, due to increased efficiency in production. Thus, as companies scale and increase production, a subsequent decrease in the costs associated with it will help the organization scale further.

Diseconomies of Scale

diseconomies-of-scale
In Economics, a Diseconomy of Scale happens when a company has grown so large that its costs per unit will start to increase. Thus, losing the benefits of scale. That can happen due to several factors arising as a company scales. From coordination issues to management inefficiencies and lack of proper communication flows.

Network Effects

network-effects
network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Negative Network Effects

negative-network-effects
In a negative network effect as the network grows in usage or scale, the value of the platform might shrink. In platform business models network effects help the platform become more valuable for the next user joining. In negative network effects (congestion or pollution) reduce the value of the platform for the next user joining. 

Read Next: Income StatementBalance SheetCash Flow Statement, Financial StructureWACCCAPM.

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